Dubai Masseuses Return to Economy Seeking New Growth Balance

Rewa Zeinati, a freelance writer
living in Dubai, has noticed more business cards with photos of
scantily clad women offering massages piling up on her car
windscreen lately.

“Sometimes I’m away for 30 minutes and come back to find a
stack of them,” she said. “I’ve definitely seen an increase
this year.”

Residents say it’s harder to find taxis, book restaurants
or golf courses and get school places for their children, with
Dubai’s economy posting the fastest growth since 2007. Home
rents climbed about 17 percent last year, while air traffic and
non-oil trade hit record highs.

The drivers of growth are different this time, with surging
demand for services, legal and otherwise, as well as exports.
That suggests any new Dubai boom won’t emulate the one that
peaked in 2007, when the economy soared 18 percent and then
crashed to a near-default after the global crisis of 2008.

“Hotel occupancy is up quite significantly and the airport
is crazy,” said Abdul Kadir Hussain, chief executive officer at
Mashreq Capital DIFC Ltd., who runs the region’s best-performing
fixed-income funds as of December 2012. “If you go to Jebel Ali
Free Zone, rents are up and it’s fully occupied. That part of
the model is working very well and has recovered very well.”

‘Crazy’ Airport

In the first half of 2012, construction shrank 2.5 percent
from a year earlier while earnings from hotels and restaurants
grew 16 percent. It was the opposite five years earlier, when
building jumped 23 percent while the hospitality industry added
just 4.5 percent. The economy expanded 4.3 percent in 2012,
according to preliminary estimates.

Stocks in Dubai are relatively cheap and “a good
investment vehicle this year,” since the economic rebound will
“trickle down to corporate earnings,” said Haissam Arabi,
chief executive officer of Dubai-based hedge fund Gulfmena
Investments Ltd. While Dubai’s benchmark climbed 20 percent in
2012, the most since 2007, it’s still less than a quarter of its
historical peak in November 2005.

Dubai sometimes still evokes its headline-grabbing boom,
raising concerns that the economy could overheat again. It
announced plans in November to build an even bigger shopping
center than Dubai Mall, alongside a complex of five theme parks.

Mega-Project Debts

Spending on such mega-projects led the emirate to rack up
about $113 billion of debt. It required a $20 billion bailout in
2009 from neighboring Abu Dhabi, the largest and richest of the
seven sheikhdoms in the United Arab Emirates. Dubai has about
$40 billion of debt due by the end of next year, according to
Bank of America Merrill Lynch.

The U.A.E.’s central bank, based in Abu Dhabi, has taken
steps to ensure economic growth is better balanced. Last month
it capped mortgage lending at 70 percent of property value for
Emiratis and 50 percent for foreigners, with lower rates for
second mortgages.

It makes sense for Dubai to steer away from an economy
hoisted by property and construction, said Emad Mostaque, a
strategist with Noah Capital Markets in London.

“Abu Dhabi doesn’t want to bail out Dubai again,” he
said. U.A.E. authorities are trying to “keep their economy as
stable and bullet-proof as possible when they see instability
all around them,” he said.

Tourist Allure

The wave of uprisings in Arab countries over the past two
years has hurt some regional economies. Dubai, untouched by
unrest, may be among the beneficiaries.

“Political stability makes it a very attractive place for
travelers in the region to come and spend their time and
money,” said Khatija Haque, senior economist at Dubai-based
lender Emirates NBD PJSC. (EMIRATES) The recovery in retail, tourism and
transport “reflects the strength of consumption in the U.A.E.,
but more importantly in the wider region.”

Saudi Arabia, the largest Gulf Arab economy, expanded at an
average pace of 7.7 percent in the past two years, driven by
government spending to boost employment and avert unrest.
Emirates has added a third daily flight to Jeddah, Saudi Arabia
to cope with demand during Dubai’s shopping festival this month.

Growth in the six-nation Gulf Cooperation Council, which
includes Saudi Arabia and the U.A.E., was 5.1 percent in 2012,
according to HSBC Holdings Plc. That’s about four times the IMF
estimate for advanced economies. Dubai’s development plan for
the next three years envisages growth rates ranging between 4.1
percent and 5.4 percent.

Golf Congestion

Dubai’s foreign trade excluding oil rose to a record 1.29
trillion dirhams ($351 billion) in the first 10 months of 2012,
while passenger traffic hit a record 5 million in July.

Like construction, finance is playing a smaller part in the
current expansion than it did during the boom. It grew 3.2
percent in the first half of 2012, compared with 29 percent for
the whole of 2007.

Still, Dubai has plans to boost that industry too,
including a Shariah finance council that will help attract more
wealth from the world’s 1.6 billion Muslims. Islamic financial
assets worldwide may double to as much as $3 trillion by 2015,
Standard & Poor’s said in September.

That’s another reason why Mashreq Capital’s Hussain may
have more trouble finding slots for early-morning rounds at his
favorite golf course.

“In the last three winters I could just drive up to my
golf club, get out and play” he said. This year, after twice
being turned away because the course was full, “I decided to
call two days before. And they said ‘yeah, but not till 9:30’.”